Classic Liberal Blog

The Federal Reserve counterfeits money. This is not a controversial statement. It is fact.

Our entire banking system (a pyramid on which the Federal Reserve sits at the top), is a criminal enterprise.

The latest release of Lehman Brothers dirty little secrets, simply exposes more of this truth.

Report Details How Lehman Hid Its Woes as It Collapsed

It is the Wall Street equivalent of a coroner’s report — a 2,200-page document that lays out, in new and startling detail, how Lehman Brothers used accounting sleight of hand to conceal the bad investments that led to its undoing.

According to the report, Lehman used what amounted to financial engineering to temporarily shuffle $50 billion of troubled assets off its books in the months before its collapse in September 2008 to conceal its dependence on leverage, or borrowed money. Senior Lehman executives, as well as the bank’s accountants at Ernst & Young, were aware of the moves, according to Mr. Valukas, the chairman of the law firm Jenner & Block and a former federal prosecutor, who filed the report in connection with Lehman’s bankruptcy case.

Lehman executives engaged in what the report characterized as “actionable balance sheet manipulation,” and “nonculpable errors of business judgment.”

The report draws no conclusions as to whether Lehman executives violated securities laws. But it does suggest that enough evidence exists for potential civil claims. Lehman executives are already defendants in civil suits, but have not been charged with any criminal wrongdoing.

A large portion of the nine-volume report centers on the accounting maneuvers, known inside Lehman as “Repo 105.”

Lehman Brothers hid borrowing, Geithner may bear some responsibility

There’s another angle that the New York Times chose not to cover.  Naked Capitalism notes that the NY Fed during the ‘financial misbehavior’ was being run by current Treasury Secretary Timothy Geithner:

It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations.

We need to demand an immediate release of the e-mails, phone records, and meeting notes from the NY Fed and key Lehman principals regarding the NY Fed’s review of Lehman’s solvency. If, as things appear now, Lehman was allowed by the Fed’s inaction to remain in business, when the Fed should have insisted on a wind-down (and the failed Barclay’s said this was not infeasible: even an orderly bankruptcy would have been preferrable, as Harvey Miller, who handled the Lehman BK filing has made clear; a good bank/bad bank structure, with a Fed backstop of the bad bank, would have been an option if the Fed’s justification for inaction was systemic risk), the NY Fed at a minimum helped perpetuate a fraud on investors and counterparties.

EXPLOSIVE: Lehman - Where Are The Cops?

It is stated that Government Regulators (FRBNY and The SEC) had "no knowledge" of these practices. Perhaps true. But this calls into question why we're hearing of this just now, and whether other firms have or are at present doing the same sort of thing.

There also appears to be a colorable claim that Lehman Management was fully-aware of what was going on:

Although interview statements given to the Examiner were inconsistent at times, no reasonable dispute exists that each of Lehman’s Chief Financial Officers from late 2007 to September 2008 possessed some knowledge of and/or involvement with multiple aspects of Lehman’s Repo 105 program, including the existence of firm-wide Repo 105 limits, the volume of Repo 105 activity Lehman engaged in at quarter‐end, and Lehman’s efforts to manage its balance sheet using Repo 105 transactions.

Well that's special.

But we're just getting warmed up.

Remember, The Feral Reserve is supposed to by the "uber-regulator" and the "safety and soundness" manager for the financial system.

They did a great job, right? Well...

For example, when

the Examiner questioned Lehman executives and other witnesses about Lehman’s financial health and reporting, a recurrent theme in their responses was that Lehman gave full and complete financial information to Government agencies, and that the Government never raised significant objections or directed that Lehman take any corrective action.

True? Let's see what the Examiner had to say:

Although various Government agencies had information that raised serious questions about Lehman’s reported liquidity and about the sufficiency of its capital and liquidity to withstand stress scenarios, the agencies generally limited their activities to collecting data and monitoring.

Oh. They looked but didn't act. I see.

So let's see what we got here. They ran two sets of stress tests and the firm failed both. Not satisfied with the results they then designed a third set, which the firm also failed (we can reasonably presume the third had less stringent requirements than the other two!)

Instead of applying any of these three, FRBNY, which was run by one MR. TIMOTHY GEITHNER, NOW OUR TREASURY SECRETARY WHO REPORTED TO ONE BEN BERNANKE, instead took Lehman's word that all was ok and did nothing.

Wait a minute. In the spring of 2009 we were told that all the big banks ran "Stress Tests" of Geithner's design. But Treasury didn't actually run them and didn't actually get and process the data - they told the banks to do so.

Uh, that's exactly what Lehman did, right? And Lehman passed its own "internally computed" stress test but failed all three of the externally-computed ones.

Do you still accept that all these other banks are solvent? What about the facts we do know - such as the inconvenient fact that between them the "big banks" have something like $150 billion of Home Equity lines behind an underwater and delinquent first mortgage, which is, by the way, worth zero yet being carried at or near full value......

Nor did it end there.

The SEC inspection revealed significant problems at Lehman. The SEC found that Lehman’s Price Valuation Group was understaffed; and it found that Lehman’s asset pricing function was overly “process driven.”5761 But the SEC did not release its findings or formally present them to Lehman prior to Lehman’s demise.

So The SEC knew, and they too did nothing.

IF - and I stress IF - these fictions are also present in our large banking institutions, and there is NO REASON TO BELIEVE THEY ARE NOT, it is simply a matter of time before one or more of them detonates in a similar if not identical fashion. Since these firms are all much larger than Lehman and neither the FDIC or Treasury has a spare $500 billion laying around for the potential payout to depositors that might be necessary in such an instance, we cannot reasonably assume that the risk of financial Armageddon has in fact passed until we know for a fact that all fictional balance sheets are excised and all off-sheet exposures accounted for.

Do you still "believe" in the Tooth Fairy, Santa Claus, the Federal Reserve, and "regulators?"

Does sound money still seem like an antiquated idea? "Long live fiat!"

Fed Policy in a Nutshell: Our government and banking system is a criminal enterprise.

It will only get worse, until "we the people" wake-up and stop looking at politicians as if they're our favorite professional sports players.

The Fed as Giant Counterfeiter: If you and I started whimsically printing up dollars, we'd be rightfully thrown in jail. But when the Fed does it, we call it "monetary policy."

The Very Real Threat of Money Inflation: Listen to David Frum and the other useful idiots if you must, but you'd be smarter in preparing for the worst.

Money and Banking in One Paragraph: In 1913 Wilson legalized counterfeiting, just for the government — we can’t do it.

Audit the Federal Reserve: There's only one guy in Washington fighting for "we the people," but so-called conservatives are "too cool" to support him.

This latest news about Lehman Brothers is just more evidence that the Federal Reserve is a criminal enterprise. So I must ask ...

"Just how much more of this stuff are you willing to take?"